The sale of the Washington Post to Jeff Bezos for $250 million on Monday underscores the steeply declining value of American newspapers and is ominous news for other marquee brands that are up for sale including the New York Times and Tribune Co.’s newspapers.
The Washington Post’s market cap of $4.2 billion would have suggested a higher price for one of the most distinguished brands in American journalism, according to analysts interviewed by TheWrap.
"By Don Graham selling this, he’s really started something in terms of devaluing newspapers," Ava Seave, a consultant at Quantum Media who teaches media strategy at Columbia Business School, told TheWrap. "By selling for a very low number it definitely makes comps for other newspapers more difficult."
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The Washington Post Company (WPO-NYSE) has been consistently losing money, but its newspaper division — the part that sold to Bezos – has been a major drain, hemmoraghing tens of millions per year, including $53.7 million in 2012. Last week, the parent company reported another loss for its newspaper division in its second quarter and acknowleded that the Post continued to suffer large print circulation declines.
The New York Times, by comparison, has a $1.2 billion market cap and posted a profit during its most recent quarter. Advertising revenue continues to slide at the company, but that has been cushioned somewhat by its successful paywall strategy that has attracted 738,000 digital subscriptions across its brands.
By forgoing a public auction and tapping the investment firm Allen & Co. to quietly shop the paper to deep-pocket buyers, Washington Post CEO Don Graham may have settled for a lower price than he would have received if he'd opened up the bidding, analysts say.
“If I were a shareholder I’d be pretty annoyed,” said Seave, adding, “I would never be a shareholder.”
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Graham said on Monday that he and his niece Katharine Weymouth decided to shop the newspaper division earlier this year after taking a hard look at its prospects after seven straight years of declining revenues.
"As the newspaper business continued to bring up questions to which we have no answers, Katharine and I began to ask ourselves if our small public company was still the best home for the newspaper," he wrote in a letter on the Washington Post website.
Ken Doctor, who writes the "Newsonomics" column at Harvard's Nieman Journalism Lab told TheWrap: "It seems like a white knight scenario." The Graham family , he said, "stared the future in the face and said, 'I don't know how we're going to do it.'"
In the short run, investors seemed thrilled to be rid of the money-losing Post. Shares closed up 1.68 percent at $568.70 on Monday and continued to climb more than 5 percent in after-hours trading.
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The Graham clan weren't the only ones faced with an unappealing escape plan. The New York Times Company sold the Boston Globe to Red Sox owner John Henry over the weekend for $70 million and with one major caveat. The media company had to assume $110 million in pension liabilities as part of the sale, meaning it actually lost $40 million on the deal, which included the Worcester Telegram & Gazette.
The Times paid nearly $1.1 billion for The Globe in 1993.
The effect on the Tribune Co., which is in the process of spinning off its eight newspapers, is likely to be significant for a potential sale.
Last year the Post's newspaper group, which includes Slate Media Group, posted losses of $53.7 million — down from losses of $21.2 million in 2011. Revenues also declined 7 percent to $581.7 million. The red ink continued to spill throughout this year, with the newspaper division posting an operating loss of $14.8 million for the second quarter of 2013, an increase from the losses of $12.6 million it posted a year earlier.
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Meanwhile IBT Media purchased Newsweek, a former Post property, last week. Terms of the deal have yet to be divulged, but it's a safe bet they're roughly in line with $1 and assumption of $47 million of debt that yet another billionaire, the late-Sidney Harman, shelled out in 2010 for the weekly.
Despite the billionaires' new fondness for the printed page, getting out of the legacy media business has never been more popular. Time Warner is in the process of spinning off its publishing assets and even paper-loving media titans like Rupert Murdoch must be getting tired of the red ink, given that tabloids like the New York Post bleed on the order of $100 million annually.
Should the day come when they or say, the Sulzbergers decide to join the Grahams by selling the New York Times, they will find it has turned into a buyers market where bargain-hunting is the name of the game.
Sara Morrison contributed to this report.